This blog is all about economic and financial events happening in Mongolia.

Friday, June 27, 2014

Viking Mines in fresh deal with Mongolian power authorities

Viking Mines – formerly Viking Ashanti – has signed a second future coal supply agreement with a Mongolian government power authority. The non-binding Memorandum of Understanding (MOU) pertains to coal produced from the company’s Berkh Uul bituminous coal project in northern Mongolia.

The company said the MOU further validates the rationale for Viking to takeover Auminco Mines and Berkh Uul’s potential to deliver high quality thermal coal.

The non-binding Memorandum of Understanding was signed with Erdenet Power Plant State Owned Stock Company (EPP), a major supplier of electricity to the Erdenet copper mine.

“The fact that Berkh Uul Project continues to be recognised by the Mongolian Government as a potential key supplier of coal to the EPP is a further significant milestone in the development of the project,” managing director Peter McMickan.

“Auminco’s ongoing discussions with domestic end-users continue to confirm a local industrial demand in northern Mongolia for unwashed Berkh Uul coal, due to its low ash, low sulphur and relatively high calorific value.

The Erdenet Power Plant is a 36 MW power plant, consuming about 250,000 tpa of coal.

The MOU relates to the intent by EPP to enter into future purchase agreements for Berkh Uul coal. It also establishes a basis for technical evaluation of the quality and quantity of coal, which includes testing of a bulk sample.

This follows an earlier agreement with Darkhan Thermal Power Plant, the major supplier of electricity to Mongolia’s second largest city, the commercial and industrial centre of Darkhan, and the northern region of Mongolia.

Mine profile: Berkh Uul

Berkh Uul is 100% owned by Auminco Mines. It is located 400 kilometres north of Ulaanbaatar in Northern Mongolia, and within 40 kilometres of rail access into Russian off-take markets.

It is currently held under an exploration permit that covers 4,550 hectares and is valid until 2015. A Mining Lease application is imminent.

An independent geological report was released in March 2014, based on 45 diamond drill holes. The report estimates a JORC indicated resource of 21.4 million t, an inferred resource of almost 17 million t, for a total of 38.3 million t of near-surface high-quality bituminous coal.

Investigative work also identified the presence of multiple, shallow dipping sub-parallel coal seams on the eastern limb of a gently folded syncline, with individual seams of 0.6 – 4.5 m over a 3 km strike length that extends to a depth of 200 m.

Analysis

Analysts from Proactive Investors Australia (PIA) said that the MOU was a positive sign for Viking, demonstrating that there was evidence of the potential customer base for Berkh Uul coal.

PIA said that Viking was “being recognised by the Mongolian Government as a potential key supplier of coal to the EPP, which should underpin the development of the Project.”

Analysts also suggested the project at Berkh Uul should be fast tracked over the next 12 – 18 months. PIA said there was a local industrial demand in northern Mongolia for unwashed Berkh Uul coal, due to its low ash, low sulfur and relatively high calorific value.

The company concluded: “We believe that Viking Ashanti can develop a small scale operation that could generate a conceptual free cash flow of up to US$ 3 – 5 million.”